Gold Shows Some Glitter as Bernanke Speaks

By Brendan Conway

Gold’s price is seeing some relief today after Federal Reserve chairman Ben Bernanke signaled that the central bank’s stimulus efforts will continue. The woes in European markets don’t hurt either, leaving the metal up 1.6% at $1,612 Tuesday afternoon.

This comes after Goldman Sachs commodities strategists Damien Courvalin and Jeffrey Currie more or less threw in the towel on gold overnight. The duo cut their three-month target on gold’s price to $1,615 per ounce, from $1,825. The firm’s six-month and one-year targets also dropped to $1,600 and $1,550, from $1,805 and $1,800.

Reuters

The argument: More investors are predicting a turn for the better in the economy. ETF assets are fleeing, and they’re exhibiting a strong inverse correlation to real rates.

From the analysis:

In light of the recent moves in real rates and ETF positioning, we are making three changes to the assumptions underlying our gold forecast and detailed in our Gold cycle set to turn on improving US recovery report from December 5, 2012:

– We maintain our year-end 2013 real rate forecast but raise our starting point to the current levels of 10-year TIPS yield (Exhibit 5). As a result, we expect a higher level of real rate than previously, although a smaller increase for the remainder of the year. For now, we are stopping short of adopting our “faster recovery” path as upcoming US economic data remains essential in determining whether the US economy is indeed recovering faster than we had expected. This shift alone is worth $60/toz to our 3-mo gold price forecast.– We now forecast a decline in ETF gold holdings from their current level that tracks our expected increase in real rates against our prior expectation for gradually rising ETF holdings in 2013 (Exhibit 6). Rebasing our ETF holding path to its recent levels is worth $30/toz to our 3-mo gold price forecast while the further decline in holdings that we project this year is worth $50/toz to our year-end price forecast.– We are reducing the US fiscal policy risk premium embedded in our near-term gold forecast, as the Republicans in Congress seem to have given up on the idea of using the debt ceiling to force additional spending cuts, reducing sharply the risk that further fiscal drag would push the US economy into a renewed recession. This shift alone was worth 6% of our 3-mo gold price forecast (see Tax hikes, debt ceiling and sequester to support gold prices, January 18, 2013).

SPDR Gold Trust(GLD) is ahead by 1.1%, as is iShares Gold Trust (IAU). The closed-end Sprott Physical Gold Trust (PHYS) is up 1.4% and Central Fund of Canada (CEF) is ahead by 0.6%. Market Vectors Gold Miners (GDX) is up 1% and Market Vectors Junior Gold Miners ETF (GDXJ) is ahead by 0.3%.

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Chris Dieterich has covered the U.S. stock market for The Wall Street Journal and Dow Jones Newswires. He is a graduate of Regis University and the Missouri School of Journalism.